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Those are investment vehicles that trade existing shares on exchanges. But after an initial public offering, closed-end funds typically don't offer new shares anymore. That causes dislocations in underlying values on a regular basis. In those types of funds, investors are often told by advisors to look for portfolios selling at discounts of 5% or more.
By the same token, the rule of thumb is to not buy funds trading at a surplus—for obvious reasons.
"Clearly, there are distortions around the entire fixed-income market. A by-product is that some ETFs are trading at discounts. But in terms of looking out six months from now, there are clearly opportunities," said portfolio manager Nusbaum.
"If you're able to stomach being wrong by something like 10% in the short term, then there are clearly trading opportunities," he added.
Lower Volatility Tolerance
One aspect that goes hand in hand with market panics, says Nusbaum, is that people realize their tolerance for volatility is less than they thought. "So looking out a few years, anything you buy at this point is probably going to be at very good price levels," he said.
But in his firm's client portfolios, Nusbaum isn't willing to treat ETFs like closed-end funds at the moment.
"At this point, I won't speculate with long-term money on buying an ETF at a discount," he said.
Although that could take weeks rather than months or years to sort out, market observers note that what's going on in credit markets reflects a unique set of circumstances.
"What we're seeing take place now with bond ETFs is new to the industry," Nusbaum said. "On occasion in the past, we've had small little deviations between prices and NAVs take place. So eventually, the mechanisms built into the market that've worked before to keep everything aligned should eventually kick in."
Bond ETFs: Where They Currently Stand
|
Name
|
Ticker
|
Category
|
Discount/Premium (%)
|
|
iShares Lehman 7-10 Yr Treasury
|
IEF
|
Long Gov.
|
-0.51
|
|
iShares Lehman 20+ Yr. Treasury
|
TLT
|
Long Gov.
|
-0.24
|
|
PowerShares 1-30 Ladd. Treasury
|
PLW
|
Long Gov.
|
-0.27
|
|
Vang. Ext. Dur. Treasury
|
EDV
|
Long Gov.
|
+1.26
|
|
SPDR Lehman Long Treasury
|
TLO
|
Long Gov.
|
-0.09
|
|
SPDR Lehman Int. Treasury
|
ITE
|
Inter. Gov.
|
-0.04
|
|
iShares Lehman 1-3 Yr Treasury
|
SHY
|
Short Gov.
|
+0.18
|
|
Vanguard Total Bond Market
|
BND
|
Intermed.
|
-2.49
|
|
iShares Lehman Aggregate
|
AGG
|
Intermed.
|
-8.85
|
|
SPDR Lehman Int'l Treasury
|
BWX
|
Internat'l
|
-5.64
|
|
Vanguard Intermediate Term
|
BIV
|
Intermed.
|
-2.21
|
|
Market Vectors AMT-Free Muni
|
ITM
|
Inter. Muni
|
-0.24
|
|
iShares S&P National Muni
|
MUB
|
Long Muni
|
-2.12
|
|
Vanguard Long-Term Bond
|
BLV
|
Long Bond
|
0.22
|
|
SPDR Lehman New York Muni
|
INY
|
NY Muni
|
1.88
|
|
SPDR Lehman Calif. Muni
|
CXA
|
Calif. Muni
|
4.82
|
|
PowerShares Emerging Market
|
PCY
|
Emer. Mkt
|
-8.45
|
|
iShares iBoxx Investment Grade
|
LQD
|
Long Corp.
|
-6.04
|
|
PowerShares Insured Calif. Muni
|
PWZ
|
Calif. Muni
|
+9.73
|
|
PowerShares Insured NY Muni
|
PZT
|
NY Muni
|
+4.81
|
|
iShares iBoxx High Yield Corp.
|
HYG
|
High Yield
|
-27.99
|
|
PowerShares Insured Nat'l Muni
|
PZA
|
Long Muni
|
3.16
|
|
SPDR Lehman High Yield
|
JNK
|
High Yield
|
-8.74
|
|
PowerShares High Yield
|
PHB
|
High Yield
|
-15.44
|
Source: Companies, Morningstar Inc.
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